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Chinese Group Buys 80% of AIG Plane Unit for $4.2 Billion

A group of Chinese investors agreed to buy an 80.1% stake in the plane-leasing unit of AIG for $4.23 billion. Photographer: Ramin Talaie/Bloomberg

Dec. 10 (Bloomberg) -- A Chinese group agreed to buy 80.1
percent of American International Group Inc.’s plane-leasing
unit for $4.23 billion in the nation’s largest acquisition of a
U.S. company.

The International Lease Finance Corp. acquirers, led by New
China Trust Co. Chairman Weng Xianding, have an option to buy
another 9.9 percent, New York-based AIG said today in a
statement. The transaction, which values ILFC at $5.3 billion,
passes China Investment Corp.’s $3 billion purchase of a stake
in Blackstone Group LP in 2007 as the biggest Chinese-U.S. deal.

The acquisition gives the group control of the world’s
second-largest aircraft lessor as rising travel in China and
Asia spurs demand for planes. AIG, which counts the U.S.
government as its largest investor, is selling the Los Angeles-based unit as Chief Executive Officer Robert Benmosche focuses
on insurance operations and works to reduce debt.

“This ILFC deal squarely places the leasing business where
future growth will be,” said Will Horton, a Hong Kong-based
analyst at CAPA Centre for Aviation. “There are large
opportunities in China, but also in countries like Indonesia and
Malaysia.”

AIG will record a $4.4 billion non-operating loss, which
includes a $1.8 billion non-cash charge tied to tax assets, when
the transaction meets criteria for “held for sale” accounting
treatment, according to the statement. The deal is subject to
approval by U.S. and Chinese regulators.

Share Decline

The insurer dropped 2.3 percent to $33.36 at 4:02 p.m. in
New York. AIG said late Dec. 7 that superstorm Sandy will cost
the company about $1.3 billion after taxes and reinsurance, the
highest sum disclosed by a U.S. insurer. The company has gained
44 percent this year, compared with a 13 percent advance for the
Standard & Poor’s 500 Index.

The group investing in ILFC includes New China Trust, China
Aviation Industrial Fund and P3 Investments Ltd., AIG said. New
China Life Insurance Co. and a unit of ICBC International
Holdings Ltd., the investment banking arm of the world’s biggest
bank, may also join once the deal is approved by regulators and
the option to buy a further stake is exercised, it said.

ILFC will continue to be run by CEO Henri Courpron, 49, and
President Frederick S. Cromer, according to the statement. It
will remain as a U.S. corporation and be registered with the
Securities and Exchange Commission.

A new board, which will include Benmosche, will be
appointed following the completion of the transaction. Laurette
Koellner, who was named executive chairman of the unit in June
after Courpron was investigated over a relationship with an
employee, will step down once the sale is completed, said Paul
Thibeau, an ILFC spokesman. The deal is expected to close in the
second quarter of next year, AIG said.

AIG’s Clarity

A deal would be “credit positive” for both AIG and ILFC,
Moody’s Investors Service Inc. analysts Mark Wasden and Bruce
Ballentine said in a weekly report. “AIG would shed a non-core
operation with significant debt, while ILFC would benefit from
clarity regarding its future ownership and potentially greater
access to clients and funding sources in growing Asian
markets.”

ILFC’s new owners will be poised to expand in China and
other emerging markets in Asia, Latin America, the Middle East
and Eastern Europe, Benmosche, 68, said in a memo to staff. The
sale will help AIG narrow its focus on global property-casualty
coverage and U.S. life insurance.

“AIG is a different company today than it was four years
ago,” Benmosche said in a memo staff. “We’re leaner, more
focused.”

New Staff

ILFC had stockholders’ equity of $7.9 billion at the end of
the third quarter, the company said last month in a filing. The
unit employs about 560 people, with more than 450 in the U.S.,
where it plans to hire more staff to replace AIG-supported
operations, according to today’s statement.

The lessor owns or manages more than 1,000 planes with
another 229 on order. It is also the largest aircraft lessor in
China, with a 30 percent market share and more than 175 aircraft
leased to 16 airlines in the Greater China region, according to
the company. Globally, it trails General Electric Co.’s GE
Capital Aviation Services.

“This transaction allows ILFC to continue to serve its
worldwide partners in the aviation industry with world-class
service while accelerating its growth in important markets,
including Asia,” Weng said in the statement.

Asian Deals

Weng has been chairman of closely held investment company
New China Trust since 2008, according to a biography on the
website of Partnership for New York City. Prior to that, he
helped set up and then ran the Chinese government’s first
professional securities unit, before working for the National
Development and Reform Commission and the Chinese securities
regulator, it said. In 1993, he was named as founding CEO and
chairman of China New Industries Investment Co.

Cash-rich Asian investors are expanding plane leasing as
European banks cut lending amid a regional debt crisis. A group
led by Sumitomo Mitsui Financial Group Inc. this year bought
Royal Bank of Scotland Group Plc’s leasing unit for about $7.3
billion. Industrial & Commercial Bank of China Ltd.’s leasing
arm signed an order for 50 Airbus SAS A320s in August. Bank of
China Ltd. bought Singapore Aircraft Leasing Enterprise for $965
million in December 2006.

AIG filed for an initial public offering of ILFC last year,
and said as recently as last month that an initial public
offering may take place in 2013. The insurer had considered
selling the lessor in 2009 to raise funds to repay a $182.3
billion U.S. bailout that saved the firm from collapsing amid
the financial crisis. The company sold more than $60 billion in
assets, including Asian insurers, a U.S. consumer lender, and
its Japanese headquarters, to help repay the rescue.

Low Rates

AIG acquired ILFC in 1990 for $1.16 billion, data compiled
by Bloomberg show. Under AIG’s ownership, the plane-leasing unit
originally benefited from the ability to borrow money at low
rates, an advantage that evaporated when the insurer was hobbled
by losses tied to subprime mortgages.

Citigroup Inc., JPMorgan Chase & Co. and Morgan Stanley are
advising AIG on the transaction, with New York-based Citigroup
providing a fairness opinion to the insurer, and Credit Suisse
Group AG is representing the investor group, Jon Diat, an AIG
spokesman, said in an e-mail. Debevoise & Plimpton LLP is
providing AIG with legal advice, and Simpson Thacher & Bartlett
LLP is doing so for the investors.